Johannesburg — SA CAN look forward to an announcement by Finance Minister Trevor Manuel on the introduction of a group basis of taxation for companies in next week's budget, says Charles de Wet a tax partner at PricewaterhouseCoopers.

The introduction of a group basis of taxation would fit in with new rules on restructuring of companies contained in the Income Tax Act, De Wet said this week.

The new rules on restructuring, promulgated on February 1, will enable more companies to qualify for tax concessions than the old rules allowed.

Unlike its major trading partners, SA does not tax its companies on a group basis, even though this would reduce the complexity of tax compliance for companies. "SA was out of kilter with the rest of the world," De Wet said.

There have been radical changes in recent years in SA's tax laws, including the introduction of tax on foreign dividends and capital gains, and legislation governing foreign-controlled companies.

Companies have been asking for a group tax system to be introduced since the Katz Commission was formed in the 1990s to look into the reform of SA's tax laws. The South African Revenue Service collected R71,63bn in corporate tax for the 2005 financial year.

Group taxation is not yet a universal concept. Italy and Japan only introduced the system in 2001.

A consolidated group of firms operates as a single entity for income tax purposes and lodges a single income tax return with authorities in their country of registration.

The head company calculates all the taxable income of the entities and calculates the tax payable in each jurisdiction.

Under SA's new rules on restructuring units within the same company that are restructured to facilitate empowerment deals have to retain only 70% of the firm's equity instead of the former 75% to avoid paying a "degrouping charge".

De Wet said that the new laws were necessary to reconcile the threshold of 70% with the thresholds for equity set out in empowerment charters.